Superannuation Death Benefits – Lump Sum vs Income Stream

Where a beneficiary is eligible to receive superannuation death benefits, but does not meet the definition of a Death Benefit Dependant under the Income Tax Assessment Act 1997 Cth, death benefits can only be received as a lump sum. In the situation where a beneficiary does meet the definition of a Death Benefit Dependant, the beneficiary can elect to receive the death benefits as either a lump sum, or as an income stream.

The Death Benefits Dependant definition as found in the Income Tax Assessment Act 1997 Cth. A death benefits dependant is defined under section 302-195 as ‘the deceased person‘s spouse or former spouse; or the deceased person‘s child, aged less than 18; or any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or any other person who was a dependant of the deceased person just before he or she died’.

The question of whether a lump sum or income stream should be taken is determined by considering a number of factors, including:

The cash requirements of the beneficiary

The tax concessional environment of superannuation

The existence of property, or other assets held in a self-managed superannuation fund which members may be reluctant to dispose of due to Capital Gains Tax consequences, or illiquidity, or which may form part of a long term goal

the differences in the income taxation treatment of lump sums and income streams

anti-detriment payment amounts that may be available on lump sums

To assist in determining how superannuation death benefits should be paid to death benefit dependants, please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.